Folks should understand that all fiat money is loaned into existence. Thus, when fiat money is ‘created,’ explicitly, the principal sum [loan] is created out of thin-air, but the interest to be repaid is not.

Just as the equity markets were pushing into their anticipated turn point in late January, the Fed makes a 75 basis point cut of the Discount rate. This was the most aggressive rate cut since August of 1982. The very next week at the regularly scheduled Fed meeting they cut yet another 50 basis points.

The ISM Non-Manufacturing Index plummeted in January to 41.9, a sharp drop from December’s 54.4 reading. Numbers below 50 indicate a contracting economy and January’s reading was the lowest reading since October 2001.

Economic growth decelerated sharply from the 4.91% annualized growth rate seen in the Q3 2007 to 0.64% in Q4, nearly coming in at only half of the 1.2% consensus growth rate reported by Thomson Financial.

Last week global capital markets gyrated in a fashion I’ve never seen before. Intra-day business-cycle-in-a-day movements in equity markets included disparaging collapses as well as stunning “flagpole” rallies.

As I have watched many of the mainstream financial shows over the last week or so it is obvious that confusion reigns at even the highest levels in regard to the state of the financial markets. Yet, the answer is very clear and I have been warning about this for some time.

The Japanese yen has started rising against all of the world's major currencies as the yen carry trade may be unwinding. Traders have for years borrowed cheap yen at interest rates near 0% to reinvest those funds throughout the world.

Tomorrow, January 15, 2008, the Bureau of Labor Statistics [BLS] is due to release their report for December Producer Price Inflation [PPI]. Last month at this time the BLS reported a steep rise in prices for November led by stiff increases in prices of crude oil.